Final salary pension schemes have cut the amount of money that they invest in shares in a bid to minimise the potential for losses.

Three out of 10 schemes surveyed by the National Association of Pension Funds (NAPF) have switched from shares to safer investments, such as bonds.

The NAPF said schemes were becoming "more risk-averse" to ensure they had enough cash to pay member benefits.

Many schemes have closed as employers consider them too risky and expensive.

Growing caution

There are a variety of factors at work here, including greater longevity, lower interest rates, new accounting standards and a tighter regulatory climate

Christine Farnish, NAPF

Many final salary schemes have fallen into deficit because of a combination of poor investment performance and increased longevity of scheme members.

Often if a final salary scheme falls into deficit, the sponsoring employer uses profit to make up the shortfall.

Against this backdrop, the NAPF said there was growing caution amongst schemes.

"There are a variety of factors at work here, including greater longevity, lower interest rates, new accounting standards and a tighter regulatory climate," Christine Farnish, NAPF chief executive, said.

"This combination of developments is leading UK pension funds to steer away from traditionally higher-risk investments, like equities, and towards safer options in order to match their liabilities more effectively," Ms Farnish added.

Pension cuts

In recent weeks, major employers, including the Co-op, Arcadia, Provident Financial and Rentokil, have cut back on their pension provision.

Employees in these firms face a grim start to 2006, either paying much more into the workplace pension or seeing their final salary pension scheme mothballed by their employer.